UNCTAD: Nations Dependent on Commodities Should Diversify

Economic and export diversification is the best response to the challenges posed by climate change in developing countries that depend on commodities, according to UNCTAD’s Commodities and Development Report 2019.

The diversification could be horizontal, which entails venturing into new goods and sectors to reduce dependence on a narrow range of commodities, or vertical, which involves moving the value chain of a commodity up to increase its worth, says the report, Commodity Dependence, Climate Change and the Paris Agreement.

Although commodity-dependent developing countries contribute only modestly to climate change, the climate crisis puts them at most risk. They are more vulnerable primarily because they are economically dependent on sectors that are highly exposed to extreme weather events, the report states. Small island developing states (SIDS) are among the worst affected.

“The climate crisis poses an existential threat to commodity-dependent developing countries and will result in the collapse of some economies if decisive action is not taken now,” UNCTAD Secretary-General Mukhisa Kituyi said.

The negative effects of climate change on crop and fisheries production are more severe in low-latitude regions, where most commodity-dependent developing countries are located, the report notes. Equally at risk are high-income, fossil-fuel-dependent countries, such as Brunei Darussalam, Kuwait and Qatar, which have some of the highest levels of greenhouse gas emissions per capita. They could be profoundly affected by the stranding of their major natural resource as a result of the growing push towards greener sources of energy, the report says.

It notes that the global push towards renewable energy and energy efficiency creates opportunities in countries with large reserves of materials used in clean technologies, such as solar photovoltaic cells, wind turbines and electric vehicle batteries. For example, in 2018 the Democratic Republic of the Congo accounted for 58 percent of the global supply of cobalt, a key commodity used in the production of electric vehicle batteries, while Chile and Argentina jointly accounted for 71 percent of global reserves of lithium, another key component in the manufacture of batteries.

Fighting climate change could also create opportunities to boost production of alternatives to cattle meat and milk, the report says. It points out the case of livestock in some drylands in Africa, where increased drought frequency and declining feed availability have encouraged pastoralists to adopt camels to supplement or replace cattle.

The report echoes warnings from experts that commitments made by countries to mitigate climate change under the Paris Agreement are not ambitious enough. The commitments need to quadruple to limit global temperature rise to 1.5°C above pre-industrial levels, the report notes. It underlines that climate-related funding, which is currently only a fraction of actual requirements, needs to be substantially scaled up given the high cost of climate change mitigation and adaptation.

For example, the total cost of implementation of climate action plans for 80 developing countries that have specified their financing needs is estimated at $5.4 trillion, the report notes. This is the order of magnitude of the total amount spent on energy subsidies every year in the world.

In addition, the report states that greening fiscal policies can help to ensure taxes, subsidies and similar policy instruments contribute to the implementation of climate action plans and the achievement of the sustainable development goals. It suggests reforming fossil fuel subsidies to further green fiscal policies. It is estimated that the wealthiest 20 percent of households in developing countries receive 43 percent of the benefits from fossil fuel subsidies, while the poorest 20 percent get only seven percent.

The report is available here.